Stocks that have been underperforming since early February could hold the key to the stock market’s fate. The stock is Meta Platforms (META). As early as February 2, META gapped to a post-earnings all-time high, and continued to hit new highs over the next two months. It then gapped lower in April (again, after earnings), then turned around, rebounded, and hit new highs again in July… before pulling back again. That’s a long-winded way of saying that META has fallen into a long-term trading range, or in technical terms, a rectangular pattern. Rectangular patterns, especially large rectangles like this one, can eventually become continuation patterns or reversal patterns. Virtually every digestion phase ultimately leads to a continuation or reversal of the underlying trend. META’s breakout and collapse attempts over the past six months have failed to make any headway. So until there’s a clear move, it’s not worth speculating. At some point one side will give in and META will experience a huge move. From July to December 2023, it went through a very similar process before erupting. The direction of the next inevitable breakout could impact the S&P 500 from here. META is by far the largest component of the XLC Communications Services ETF, with a weight of 22%. Alphabet’s two classes of stock, GOOGL and GOOG, together account for another 21%. But XLC has become more consistent with META over the past few years. In September 2021, META reached the top. XLC follows closely behind. META bottomed out in early 2023, with XLC not far behind. None of this is surprising, but META and XLC also correlate closely with the S&P 500. In fact, the XLK Technology ETF has a much larger weighting in the overall S&P index. But as this chart shows, the S&P 500 hasn’t strayed too far from XLC or META in 2024. More pain avoided. In fact, this includes safe havens such as real estate, utilities, consumer staples, and healthcare. META is up 7% from its highs, and more importantly, it has yet to break out of any major support areas or trigger a bearish pattern. The bottom line is that if META can continue to hold, it will help the S&P 500 stay afloat. Additionally, META has shown relative strength against XLC and all other MAG 7 stocks since the S&P 500 last set a new all-time closing high on July 16, 2024. It could be one of the first companies to hit new highs again. -Frank Cappelleri Founder: Disclosure: (Owned GOOGL) All opinions expressed by CNBC Pro contributors are theirs alone and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliates, and may have been previously published by them on television, radio, online or other media. The above is subject to our Terms and Conditions and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not apply to your particular situation. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. Click here to view the complete disclaimer.
